CORUNNA — Citing years of financial challenges and growing legacy costs, the Shiawassee County Finance and Administration Committee Monday unanimously advanced a proposal to close the county’s Municipal Employee Retirement System (MERS) pension plan to new employees, effective Jan. 1.
Further discussion on the proposal is expected during tonight’s Committee of the Whole Meeting at 5 p.m. at the Surbeck building. If advanced tonight, the measure will go before the full county board for final approval Thursday.
If approved, the proposal would not affect any employees currently participating in MERS, but would apply to all new, non-union represented employees beginning Jan. 1, according to County Coordinator Brian Boggs. Non-represented employees include elected officials and employees in the prosecutor’s office, health department and district court.
The proposal also states that it would be up to the board of commissioners to negotiate the discontinuation of MERS across all union contracts as they are renewed in the coming years.
Shiawassee County currently offers a defined benefit plan, meaning employees are guaranteed a specific retirement benefit amount based on a number of factors, including total years of service.
The county makes annual contributions to the employee retirement plans based on actuarial tables to ensure the plans have enough money saved to make future payments to retirees. Under this system, the county takes responsibility for the investment, and therefore faces the potential risk that the returns will not cover the designated benefit amount, resulting in unfunded liability.
Shiawassee County’s current MERS plan costs approximately $880,000 per year, according to Commissioner John Plowman.
“We have legacy costs, those costs are substantial and we’ll be paying those off longer than I’m alive,” Plowman said Monday. “We have county employees that work for us in all the departments, elected officials that are on the job, and we have payroll for them. Our payroll for our legacy costs is substantial and equals almost the same amount of money we’re paying our present employees. Two sets of employees, one doesn’t work anymore … That’s the defined benefit plan.”
In an effort to “stop the bleeding,” the county intends to transition to a defined contribution retirement plan with Nationwide upon the closure of MERS, Plowman said.
Under a defined contribution plan, employees are primarily responsible for saving and investing in their own retirement, with employers having the option to offer a matching contribution up to a certain amount.
Plowman noted the state of Michigan made the switch to a defined contribution plan under Gov. John Engler in 1996.
“We have to make these changes,” Plowman said. “It’s really crimping employment, budgets, everything — it’s only going to get worse so we decided that we probably need to stop the bleeding now.”
“Keep in mind with the budget, we’re not going to see any changes in the next couple years (if we make the switch),” Chairman Jeremy Root added. “This is a long-term plan, this is something that will probably increase — it’ll actually cost us a little more to do this — but over the next 20 years it’s going to be (beneficial).”
The board of commissioners will revisit the proposal to close MERS to new employees during tonight’s Committee of the Whole meeting.